Subscribers tell cellphone companies: Take your 2-year contracts and shove ‘em

Bottom line: Folks aren’t giving up their cell phones in a tough economy, but they are looking harder at hidden fees and charges for unused minutes.  More are opting for “by the drink” plans – so that they only pay for what they use.

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Excerpted from AP:  Wireless users opt for service without commitment, May 14, 2010

Together, the seven largest U.S. wireless carriers added just 230,000 contract subscribers in the first quarter. That’s negligible compared to their entire customer base of 280 million.

Prepaid service, meanwhile, attracted about 3.1 million new subscribers to the seven largest carriers in the quarter.

This marks a sharp reversal of trends. In the same quarter just two years ago, the comparable carriers added 3 million subscribers under contract, and 2.3 million to prepaid plans.

The carriers that rank third and fourth in the U.S. by subscriber numbers, Sprint Nextel and T-Mobile USA, are losing contract customers. No. 1 Verizon Wireless and No. 2 AT&T are still adding contract customers, but at the lowest numbers in more than five years.

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Wireless subscribers have been making a big shift away from two-year contracts toward “prepaid” cell phone service, which often costs less and does not require contracts … even though contracts are needed to get popular phones such as the iPhone and the Droid.

One out of every five Americans with a cellphone had a prepaid plan at the end of 2009. In some markets, up to 30% of subscribers are on prepaid plans.

Unlike contract plans that bill subscribers each month for the services they used the previous month, prepaid services traditionally let subscribers buy minutes in advance for around 10 cents to 20 cents each. When the minutes are used up, people “refill” their accounts as needed.

For years, such plans were marketed primarily to people who did not have the credit to qualify for plans with contracts. But as the recession forced more people to cut costs, prepaid service appealed to a broader slice of the market, and prepaid services responded by offering better deals.

Now it’s possible to make unlimited calls and text messages on a prepaid plan for $45 a month – half of what it costs a customer with a contract on Verizon Wireless.

  • The prepaid market heated up in January 2009, when Sprint began offering a prepaid plan with unlimited minutes for $50 a month under its Boost Mobile brand.
  • Tracfone, a unit of Mexico’s America Movil SA, countered with Straight Talk, which provides unlimited calling for $45 per month on Verizon Wireless’ network, sold exclusively by Wal-Mart Stores Inc.
  • MetroPCS and Leap, which sells service under the Cricket brand, have responded by eliminating add-on fees for taxes and roaming, effectively cutting prices. The price war looks like it will continue.
  • Sprint and Wal-Mart Stores Inc. announced a trial of another prepaid plan: Common Cents, which is designed for people who don’t use their phones much. Calls will cost 7 cents per minute.

The popularity of text messaging is also making some people move away from contract plans that provide a big bucket of monthly minutes that may not get used.

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